There are a number of considerations that can affect whether an owner-manager chooses to take out salary income versus dividend income. Some of these considerations include:
- Paying a salary helps eliminate AMT whereas eligible dividends may cause AMT to apply;
- Dividends reduce CNIL balances;
- Dividends result in both corporate and personal installments;
- Dividends may result in a dividend refund-if there is RDTOH; and
- The existence of a GRIP balance allows eligible dividends to be paid.
Every person’s and corporations tax circumstances is unique and changes over time. Determining what the most tax efficient method of remunerating owner-managers is one that relies on current information about both the payor and the payee.